Companies not coping well with crises in digital age: Freshfields

by Michelle Quah, 05/11/2013

It's no surprise that news travels fast in this day and age, but just how fast it travels still catches many companies off-guard.

In 28 per cent of crisis incidents, news spreads across the border, to international media, within an hour, and over two-thirds spread within 24 hours, according to a global study conducted by international law firm Freshfields Bruckhaus Deringer.

"Today, largely as a result of social media, the window to buy more time has virtually disappeared," says Chris Pugh, partner, crisis management, Freshfields. "The moment a negative story breaks, it has the potential of spreading like wildfire to the other side of the world."

Compare that to the average amount of time it takes most companies to respond to these crises - 21 hours - and it's obvious then that there is a problem. In most of the cases covered by Freshfields, the company suffered a major blow - affecting its value, revenue and long-term reputation - from the inability to control reputational crises in the early stages.

Fifty-eight per cent experienced a significant disruption to their operations, while 53 per cent suffered a loss of revenue, and 27 per cent, a drop in share price.

On top of that, news of crises tends to stay in the media spotlight for months, rather than days or weeks. 53 per cent of cases were still in the public eye a month after the story first broke.

This clearly presents new challenges for companies today.

Stephen Revell, a partner at Freshfields' Singapore office, told The Business Times that the Singapore business community is definitely adjusting to the new paradigm.

"There is a clear recognition in many Singapore companies that we talk to about crisis management, of the importance of preparing for a crisis and the new ways a crisis can take hold.

"The large increase in PR (public relations) advisory firms opening their doors in Singapore suggests that there is a clear appetite in the market to get ahead of the curve in terms of crisis preparation."

Freshfields' findings come from a survey of 102 senior crisis communications professionals from the United Kingdom, Europe, Asia and the United States. Those interviewed have advised on a total of over 2,000 significant reputational crises in the last year.

They said that businesses are just not moving fast enough to contain a crisis when it breaks.

On average, companies took 21 hours to issue meaningful external communications and more than 48 hours in 18 per cent of incidents. Only 15 per cent of companies managed to get a complete response out within the hour.

More worryingly, over four in 10 firms had no plan in place in case of a crisis. Only a third had relevant communications material ready, and just one in five had run a simulation exercise.

Harald Spruit, a partner with Freshfields in Netherlands, said: "Organisations seem to be much less prepared for dealing with the social media aspects of a crisis than they are with overall crisis planning."

In half of all cases, social media had a significant impact on how the story spread locally, while in almost a third of cases, it played a major role in how the story spread globally.

The communication professionals surveyed said that this failure to prepare effectively to handle the issue online left their clients open to "trial by Twitter".

Also, while two-thirds of the cases suffered only a temporary impact, the remaining third saw more serious long-term damage, such as product recalls, liquidity problems, material litigation and hacking of their IT systems.

News of close to two-thirds of crises crossed national boundaries, meaning that the impact of issues was restrained to the originating country in only one in three cases. On average, information about a corporate crisis spread to 11 countries.

Freshfields stressed that it is important for companies to balance the need to respond promptly with the potential liabilities. Norbert Nolte, a partner with the firm in Germany, said: "Companies must ensure that they balance the need to respond to the media at speed with appraising legal risk, otherwise those words could come back to haunt them."

Fifty-five per cent of the experts consulted said that the companies' legal advisers had a major influence on what was ultimately said to the media. It was found that the more closely the communications and the legal teams worked, the more effective and prompt the response.

Geoff Nicholas, disputes partner and co-head of Freshfields global investigations practice, concluded: "Companies need to have nimble structures and procedures to take advantage of these vacuums of time. The truly unexpected will inevitably have less that companies can fall back on but, most of the time, good preparation will make a real difference as to how successfully a crisis is ultimately handled."